There are many reasons a senior may want to purchase a new home versus staying in an existing home. Possibly they want to move closer to town or to family, or eliminate stairs, or reduce size and upkeep. As long as they are 62 years or over, the Reverse Mortgage for Purchase Program (aka HECM for Purchase Program) could be the right fit.
What is needed to qualify for a Reverse Mortgage for Purchase loan?
- You must be age 62 or older (each borrower on title must meet this criteria, although others residing in home do not)
- The home you are purchasing must be your new primary residence
- You must have your “required investment” (down payment) from a HUD allowable source. The funds cannot be borrowed. The required investment can come from the sale of a currently owned asset or money you have had for at least 90 days.
Who owns the home that I am purchasing?
- As the borrower and homeowner, you will always retain the title to the home, just like any other type of home loan.
What will my personal ongoing obligations be after purchasing a home?
- It’s very similar to if you owned your home free and clear – you will NOT have a monthly mortgage payment. But as the homeowner, you will be responsible for paying property taxes, home owner’s insurance, HOA fees when applicable, and basic upkeep including home maintenance and utility payments.
When will the loan become due and payable?
With a Reverse Mortgage for Purchase the loan does not reach “maturity” until:
- the last remaining borrower passes away
- the homeowner sells the home
- the last remaining borrower leaves the home for 12 consecutive months due to illness
- the homeowner defaults on property taxes or insurance
Will I need to sell my my current home residence to qualify?
- Simply put, no. As long as the loan on your current residence is not an FHA loan and your required investment comes from a HUD allowable source, you can keep your current residence – although the home you are purchasing with the reverse mortgage WILL need to be your primary residence. Your lender will ensure you are financially stable enough to support the ongoing obligations on all properties you own. If you decide to keep your current residence as an investment, rental, or vacation property – or you are awaiting the sale of home, it is rarely a problem.
What types of properties can I purchase?
- Single family homes, town homes, and FHA approved condos are all eligible properties. The home being purchased will need to be the buyer’s primary residence.
Can I use the loan to build a new home?
- These loans cannot be used as construction loans. Homes must have a Certificate of Occupancy issued before a loan application can be started.
How is the “Required Investment” amount determined?
The “required investment” or down payment is determined by a calculation set by HUD based on:
- The lesser of the sale price or appraised value
- The age of the youngest of the borrowers
- The current expected interest rate
What may disqualify me from a Reverse Mortgage for Purchase loan?
- Foreclosures within the past 3 years.
- Unresolved bankruptcy
- Unpaid Federal obligations – i.e. federal taxes, defaults on prior government backed loans (such as student loans or government backed mortgages)
- Income too low to support multiple properties
- Unpaid judgments or tax liens
What is the HUD required “Reverse Mortgage Counseling”?
- Prior to being approved for a reverse mortgage, HUD’s Federal Housing Administration (FHA) requires each borrow to participate in a counseling session with an approved agency. These not-for-profit agencies are funded by the federal government and work closely with both the FHA and lenders to ensure a smooth process. The goal of this session is not to steer a potential borrower in one direction or another, but to make sure they clearly understand all aspects of a reverse mortgage.
Brenda Bejarano is a Reverse Mortgage Specialist serving the Dallas, Fort Worth, Plano, Richardson, McKinney, Frisco, Hurst and Bedford areas of Texas. Click here to contact Brenda and learn if a reverse mortgage is right for you.